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RBI loan moratorium scheme: Banks, HFCs tread cautiously on EMI deferral offer

According to bankers, there has been an increase in the number of customer queries related to the moratorium scheme in the past few days.

April 06, 2020 / 07:10 PM IST
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By now, most banks and Housing Finance Companies (HFCs) have published the details of Reserve Bank of India's (RBI) loan moratorium scheme on their websites. Some banks are also sending direct messages and emails to borrowers to seek their response.

It isn't clear what percentage of borrowers have applied for the loan moratorium offer so far.

A spokesperson of HDFC Bank said the bank is getting requests from customers but it is early to give a response. A spokesperson of ICICI Bank too said it is difficult to say at this stage. SBI did not respond to a query.

However, according to bankers, there has been an increase in the number of customer queries in the past few days. Interestingly, even though the loan moratorium offer is mainly aimed at those who suffered income loss during the COVID-19 induced lockdown, there are also large number of customers -- including those whose cash flows aren't affected -- approaching banks to avail the scheme, bankers said. This is despite the additional interest burden that falls on the customer if he/ share avails the offer. But these customers have a reason to do so.

The general consensus among bankers is that the EMI deferral scheme appeals to two category of borrowers. One, as mentioned above, for those who have faced loss of income on account of the COVID-19 induced lockdown (small businessmen, workers in companies that have shut shops and vendors to bigger companies who lost business). For this category, there isn't a choice. The EMI deferral scheme is a blessing for them to buy sometime to find a job or generate enough liquidity to arrange for EMI payments once the moratorium is lifted. During this period, their credit ratings won't get affected due to non-payment. This segment of the borrowers are largely from the unorganised sector.


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The second category is borrowers who have enough money but still want to avail the offer. According to bankers, these customers find merit in this offer as they can build an emergency fund using the money saved, or to pre-pay the principal component of a costlier loan.

"It is true that the interest burden will arise. The number of EMIs may go up. But, if the customer's strategy is to use this money and part-pay a costlier loan, then availing the moratorium makes sense," said one branch manager of ICICI Bank in Navi Mumbai.


There is still some amount of confusion among borrowers of NBFCs and HFCs (housing finance companies) about the implementation of the scheme. One is on the number of EMIs that effectively get deferred. While a section of the lenders said they will defer three months of EMIs (March, April and May), others said only two months of EMI (April and May) will be effectively applicable under this scheme. This is because March EMIs have  already been drawn from borrower accounts. The RBI scheme was announced in late March for EMIs till May. By then most banks had debited the EMIs for the month of March.

"We have been directed to defer EMIs for April and May. If someone wants a refund of March EMI, he can apply. But this process won’t be automatic," said an official with PNB Housing finance requesting anonymity.

But an official of another large HFC said they have already put on hold March payments from borrowers till clarity emerges on the implementation part of the scheme.

Also Read: RBI’s moratorium: Don't stop your loan EMIs if you can afford to pay

Second is on the status of NBFCs with respect to their loans to banks. NBFCs typically borrow from banks. Unlike banks, these entities cannot raise funds from depositors. Now the problem for them is that under RBI guidelines, they are not eligible for loan moratorium. At the same time, RBI rules clearly state that NBFCs will have to give moratorium to their customers. This could lead to a temporary cash flow problem for these entities. This has created a confusion among smaller NBFCs, prompting them to tread cautiously while extending the scheme to their borrowers. Though these companies can avail liquidity from the RBI under the targeted long-term repo operation of the central bank, smaller NBFCs are slightly worried about their liquidity position.

Also Read: SBI's 'automatic' EMI moratorium offer: Watch out for this hidden risk for borrowers

Big banks are happy with the moratorium offer for retail borrowers for two reasons. One, only a relatively low percentage of borrowers (as a percentage of total) will avail the offer. Second, borrowers who avail this offer will have to pay additional interest to the bank as the interest continues to accrue during the moratorium period. For the borrower, this could translate into more number of EMIs. Consider this: for a Rs 30 lakh loan with 15 years EMI remaining, the additional interest burden will translate into 6-8 EMIs.

If the EMI deferral is offered automatically, there is a chance that borrowers wouldn't even know the risks associated with the offer.

For instance, SBI Chairman Rajnish Kumar initially said SBI borrowers do not need to apply to avail the moratorium offer and the scheme will be  made available to them automatically. But later, SBI changed the automatic option and sought customer consent.

Since the RBI guidelines specifically mentions that deferral wouldn't amount to any changes in asset quality norms and borrower’s credit rating, the banks do not need to worry. But, for the borrower, this will add to his repayment burden.

The EMI moratorium scheme is turning out to be an interesting experiment for the banking industry.
Dinesh Unnikrishnan
first published: Apr 6, 2020 06:21 pm

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